Contract Law Basics

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Questions and Answers

Which type of agreement restricts a vendor from engaging in similar business in competition?

  • Non-disclosure agreement
  • Franchise agreement
  • Partnership agreement
  • Restraint of trade agreement (correct)

What does Prima Facie mean in the context of restrictive covenants?

  • Void on first appearance (correct)
  • Legally binding under all conditions
  • Enforceable in court
  • Accepted without further proof

What is a key characteristic of a valid contract?

  • It can be enforced regardless of legality.
  • It requires mutual consideration. (correct)
  • It must involve a formal ceremony.
  • It must be made in writing.

Which of the following actions could lead to the absence of genuine consent in a contract?

<p>Undue influence from another party (B)</p> Signup and view all the answers

Which of the following is NOT a requirement for a contract to be valid?

<p>The contract must be agreed upon verbally. (D)</p> Signup and view all the answers

What does 'public good' refer to in the context of contract legality?

<p>The courts' willingness to enforce rights against public interests. (B)</p> Signup and view all the answers

Which situation could NOT represent un-permitted work?

<p>Executing construction with all necessary permits (A)</p> Signup and view all the answers

What must exist for a valid contract regarding voluntary action?

<p>Genuine consent from all parties (A)</p> Signup and view all the answers

Which aspect of a contract must always be legal to ensure its validity?

<p>The consideration involved. (D)</p> Signup and view all the answers

What occurs when a contract is contrary to criminal law?

<p>It becomes void and unenforceable. (B)</p> Signup and view all the answers

Which of the following categories does NOT relate to unauthorized work?

<p>Contracts signed in compliance with laws (D)</p> Signup and view all the answers

Which of the following is NOT a factor that can invalidate voluntary consent?

<p>Unwritten agreements (A)</p> Signup and view all the answers

Which of the following situations would typically render a contract invalid?

<p>A contract for an illegal activity. (C)</p> Signup and view all the answers

Which of the following best describes un-licensed work?

<p>Agreements lacking required licenses (D)</p> Signup and view all the answers

What is the significance of mutual consideration in a contract?

<p>It implies both parties must provide some value. (B)</p> Signup and view all the answers

What could potentially violate the principle of 'restraint of trade' in a contract?

<p>A contract preventing a person from working in a certain industry indefinitely. (B)</p> Signup and view all the answers

What constitutes a material fact in a contract?

<p>A fact that influences a party's decision to enter into a contract. (B)</p> Signup and view all the answers

Which of the following best describes innocent misrepresentation?

<p>A false statement made genuinely believing it to be true. (A)</p> Signup and view all the answers

What is a common remedy for fraudulent misrepresentation?

<p>Contract rescission and potential legal action for damages. (A)</p> Signup and view all the answers

In the context of misrepresentation, which situation exemplifies negligent misrepresentation?

<p>Selling a car while unaware it has a significant mechanical defect. (B)</p> Signup and view all the answers

What is the primary goal of rescission as a remedy?

<p>To restore parties to their pre-contract conditions. (D)</p> Signup and view all the answers

Which of the following scenarios would likely not involve a material fact?

<p>The aesthetic preference of the buyer. (B)</p> Signup and view all the answers

How can fraudulent misrepresentation affect legal consequences?

<p>It may result in both rescission and tort liability. (B)</p> Signup and view all the answers

Which statement is NOT true regarding misrepresentation?

<p>Misrepresentation must always be intentional to be actionable. (A)</p> Signup and view all the answers

What is negligent misrepresentation defined as?

<p>A false statement of a material fact made carelessly (D)</p> Signup and view all the answers

Which of the following best describes duress in a legal context?

<p>Pressure that involves unlawful threats or violence (C)</p> Signup and view all the answers

Which of the following scenarios best illustrates undue influence?

<p>A therapist convincing a patient to change their will (C)</p> Signup and view all the answers

In what circumstance might punitive damages be awarded?

<p>When simple rescission of a contract is not possible (C)</p> Signup and view all the answers

What is a common characteristic of negligent misrepresentation?

<p>It involves a false statement made due to carelessness (A)</p> Signup and view all the answers

Which of the following best represents a power relationship that could lead to undue influence?

<p>A parent urging their child to take a specific career path (D)</p> Signup and view all the answers

When does non-disclosure relate to negligent misrepresentation?

<p>When material facts are neglected due to carelessness (A)</p> Signup and view all the answers

What must a person do upon experiencing duress?

<p>Repudiate their agreement as quickly as possible (C)</p> Signup and view all the answers

What characterizes a mistake of fact?

<p>An error about the identity of the contracting party (B)</p> Signup and view all the answers

Which statement correctly describes a unilateral mistake?

<p>One party is mistaken about their own understanding (A)</p> Signup and view all the answers

What can potentially void a contract due to an obvious mistake?

<p>A clearly erroneous quote (A)</p> Signup and view all the answers

Which scenario describes a mutual mistake?

<p>Both parties believe a specific item exists when it does not (C)</p> Signup and view all the answers

What does 'Caveat Emptor' imply in the context of contract mistakes?

<p>Buyers assume the risk of purchasing faulty goods (A)</p> Signup and view all the answers

Which of the following is NOT characterized as an obvious mistake?

<p>Mistakes based on market trends (B)</p> Signup and view all the answers

What is required for a contract to be enforceable when a mistake has occurred?

<p>An obvious mistake that both parties acknowledge (A)</p> Signup and view all the answers

What happens when one party commits a unilateral negligent mistake in contract negotiations?

<p>Caveat Emptor applies to protect the other party (B)</p> Signup and view all the answers

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Study Notes

Capacity and Consideration

  • Persons may not have legal capacity to enter contracts
  • Mutual consideration is an exchange of value
  • Caveat emptor - let the buyer beware

Valid Contract

  • A valid contract is a deliberate agreement between at least two competent parties, supported by mutual consideration, to do some legal act voluntarily

Legality

  • For a contract to be valid and enforceable, it must be legal
  • The consideration and subject of the contract must also be legal

Contrary to Statute

  • A contract that is contrary to the criminal code is illegal
  • Contracts may be illegal under other acts such as the Competition Act or Workers Compensation Legislation

Public 'Good' or 'Policy'

  • Public policy prevents the courts from enforcing rights that are contrary to the general interests of the public
  • Public policy can also affect legal interest rates for private lenders

Restraint of Trade: Categories

  • Contracts in restraint of trade fall into 3 categories:
    • Contrary to the Competition Act
    • Agreements between business sellers and purchasers restricting the vendor from engaging in similar business in competition
    • Agreements between employees and employers restricting the employee's right to compete with the employer

Restraint of Trade: Covenants

  • Contracts in restraint of trade create restrictive covenants
  • Restrictive covenants are considered void on first appearance (prima facie)

Un-licenced Work

  • Contracts between unlicensed tradespersons and professionals and a contracting party may be illegal. This applies to professions like engineering, architectural, electrical, and more

Un-permitted Work

  • Construction work without a permit is illegal or un-permitted
  • Be sure to check local city licensing and permitting requirements
  • In order to create a valid contract, one must give genuine consent - which means acting voluntarily
  • Vitiating factors can affect a contract's validity and include:
    • Misrepresentation
    • Undue influence
    • Duress
    • Mistake

Misrepresentation: Material Fact

  • A material fact leads to or brings about a contract
  • For example:
    • The color of a car may be important to a buyer, while type of stereo may not be.

Misrepresentation: Categories

  • Three different categories of misrepresentation exist:
    • Innocent
    • Fraudulent
    • Negligent

Innocent Misrepresentation: Definition

  • A false statement of a material fact made by a party that honestly believed the fact to be true

Innocent Misrepresentation: Example

  • A seller mistakenly believes a parcel of land is zoned for high rise buildings, when in fact it is not. This is an innocent misrepresentation.

Innocent Misrepresentation: Remedy

  • Contract rescission is the revocation of a contract
  • Rescission restores the parties to their pre-contract state

Fraudulent Misrepresentation: Definition

  • A false statement of a material fact made with the intent to deceive.

Fraudulent Misrepresentation: Example

  • Selling a diamond ring that is actually crystal.

Fraudulent Misrepresentation: Remedies

  • Contract rescission if possible
  • Sue for damages
  • May include punitive damages due to fraudulent nature of the misrepresentation
  • May also be considered a tort of deceit

Negligent Misrepresentation: Definition

  • A false statement of a material fact made due to a person's negligence. Non-disclosure may also be considered negligent misrepresentation.

Negligent Misrepresentation: Example

  • Esso provides franchise information that is completely inaccurate.

Negligent Misrepresentation: Remedies

  • Contract rescission if possible
  • Sue for damages
  • May include punitive damages

Undue Influence: Power Relationships

  • In law, certain "power relationships" exist and can impact voluntary action and consent
  • Positions of elevated status, higher education, family ties, medical professionals, and others possessing undue influence may affect a person's ability to consent to a contract

Duress: Definition

  • Duress occurs when unlawful pressure is used to compel someone to agree. This pressure can be violence or threats of violence towards the person or their family.

Duress: Action

  • One cannot be acting voluntarily when under threat of violence.
  • It is important to repudiate (reject) the contract quickly.

Mistake: Definition

  • Mistake is defined as:
    • An erroneous opinion as to the identity or existence of the subject matter or some other important term of a contract

Mistake of Fact: Definition

  • Mistake as to the existence of the subject matter of a contract or the identity of a party.

Mistake of Fact: Subject Matter

  • Example: A boat is sold when it no longer exists, such as in the case of a fire destroying the vessel.

Mistake of Fact: Identity of a Party

  • Parties to a contract cannot be mistaken as to the identity of the party with which they are contracting.

Mistake: Unilateral vs Mutual

  • Unilateral Mistake: One party is mistaken. This can resemble misrepresentation.
  • Mutual Mistake: Both parties are mistaken.
    • Rectification may be possible.

An Obvious 'Mistake'

  • If a mistake is obvious, a potential contract may be void
  • If a mistake is obvious on the face of a quote, for example.

Unilateral Negligent Mistake: Caveat Emptor

  • Caveat Emptor (let the buyer beware) applies where one party makes an error with regard to the adequacy of consideration in a contract.

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